MONEY-SMART KIDS Novel Allowance Systems by Janet Bodnar
I have two children, ages 7 and 10, and would like to start giving them allowances. Is it okay for parents to keep track of how they spend it? Can you recommend any good books on teaching finance to children?
Should I start my kids' allowance with deductions for taxes, savings, medical insurance, etc., to teach them about finance? Of course, the take-home pay would be close to what the actual allowance would have been without the deductions.
Each of you has an interesting twist on the subject of allowance, which just goes to show that there's no one-size-fits-all system for every family.
But successful systems do have several things in common: They're simple enough for both parents and kids to manage; they're age-appropriate; and they give kids the opportunity to make their own decisions. Based on these criteria, each of you will have to address potential pitfalls to make your ideas work.
In the first case, parents have every right to lay down some rules about how an allowance is spent. You could stipulate, for example, that the kids not buy candy or purchase toys that you deem dangerous or inappropriate. Beyond that, however, you want to give your children enough freedom to make their own spending decisions and their own mistakes.
Also, keeping track of the kids' expenses would mean work for you -- and violate the "keep it simple" principle. If cash seems to slip through their fingers, you could help the kids monitor their spending. But resist the temptation to tell them what to do with the money.
In the second case, if your kids are still in elementary school, hitting them with taxes and medical insurance may be overwhelming. And while those would be phantom expenses for the kids, putting money into savings should take a very real bite out of their take-home pay so that they learn the value of thrift.
Still, your idea is intriguing. To make it work, I'd keep it as streamlined as possible by limiting the deductions. Come up with a gross number that, when reduced by, say, 20 percent for taxes and 5 percent for health insurance, equals the actual allowance (out of which kids could save, say, 10 percent).
As for books, if you like the advice in this column, I'd recommend mine -- "Dollars & Sense for Kids" (800-280-7165) -- which includes a chapter on how to set up a successful allowance system.
GETTING STARTED
